Form 5500

What is Form 5500?

Form 5500 is a report that businesses must file annually to provide the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) details about the company’s employee benefit plans. It includes details such as the investments, operations, and conditions of the plan. 

This form is just one of the measures of the Employee Retirement Income Security Act (ERISA) for collecting information about employee benefit plans.

Form 5500 and your small business

One of the most important parts of your company’s Form 5500 is the plan to deposit the deferred salary or wage contributions into the contributing employee’s 401(k) account.

Plan sponsors must deposit contributions as early as possible. Larger businesses with over 100 employees must deposit the funds by the fifteenth business day after the end of the month following the pay date, but are subject to scrutiny under the law and usually must deposit much sooner. Smaller businesses, however, have a seven-day safe harbor period to make contribution deposits into the plan.

Who needs to file Form 5500?

Most private sector companies must file a Form 5500 if they meet the following criteria:

• A 401(k) program (or other retirement plan) that is insured or self-insured, and

• 100 or more participants with a balance in the plan at the start of the plan year.

In more detail, the following plans require their sponsors to file a separate Form 5500:

• 401(k) plans

• Annuity arrangements

• Medical, dental, and life insurance

• Pension plans

• Money purchase, profit-sharing, and stock bonus plans

• Severance pay plans

• Retirement arrangements

Due dates and extension options for Form 5500

Plan sponsors generally must file their Form 5500 by the last day of the seventh month following the end of the plan year. For example, a plan year that ends Dec. 31 should have its Form 5500 filed by July 31 of the following year to avoid late fees and penalties.

Plan sponsors can also file for an extension. Provided that the extension is filed by the deadline for the Form 5500, the plan sponsors have another two and a half months to file their form.

As part of the filing process, the plan sponsor needs to electronically sign and submit the form to the Department of Labor. You should also keep a manually signed copy of the form and all of its schedules on file.

Are there penalties associated with the Form 5500?

Yes. Not filing a Form 5500 on time exposes an employer to potentially severe penalties, including an IRS penalty (increased by The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)) of $250 per day, up to a maximum of $150,000, and a Department of Labor (DOL) penalty of $2,670 per day as of January 15, 2024, with no maximum.

The DOL does not currently have a maximum for these penalties, meaning they can be stacked on top of each other resulting in hefty financial burdens for businesses that do not comply.

Late filing penalties can generally be waived if the requirements of the DOL’s Delinquent Filer Voluntary Compliance Program are met, but there is a fee to use the program. Fees are generally capped at $1,500 for small plans and $4,000 for large plans - which is much less than the daily penalty assessed by the DOL. 

What are an employer’s Form 5500 filing requirements?

Government bodies use Form 5500 to evaluate the financial health of employee benefit plans. To do this, most forms require the following broad categories of information:

• Schedule A: Information about insurance contracts

• Schedule C: List of service providers

• Schedule G: Financial transaction information

• Schedule H or I: Schedule of financial assets and liabilities

• Schedule R: Schedule of the retirement plan

The form may also require additional accounting and actuarial information.

Form 5500: Three types

A company will file one of three types of Form 5500 for each account. Those different types are:

1. Form 5500-EZ:

This “easy” plan filing is for solo 401(k) plan sponsors, and requires an annual Form 5500 filing if the plan has more than $250,000 in plan assets on the last day of the plan year. A solo 401(k) is a self-sponsored plan type for business owners who work alone or with their spouse. Note that the IRS has stated one participant plans may not elect to file the Form 5500-SF instead.

2. Form 5500-SF:

This form is for companies with fewer than 100 participants with a balance on the first day of the plan year. These companies can fill out a simplified version if they also meet these requirements:

1. The plan only has eligible plan assets, such as mutual funds and variable annuities, that have determinable fair value.

2. The plan doesn’t include employer securities.

3. The plan meets independent audit waiver requirements established by the Department of Labor.

3. Form 5500

Companies with 100 or more plan participants with a balance at the start of each plan year must file the traditional Form 5500. Smaller companies that don’t satisfy the requirements to simply file Forms 5500-EZ or 5500-SF must also file the traditional form. It requires companies to provide the schedules listed above.

Summary annual report

Sponsors have additional responsibilities. Companies must create a Summary Annual Report (SAR) that summarizes the contents of Form 5500 and then distribute it to every employee participating in the plan. SARs must inform employees of their right to request a free copy of Form 5500, and the document needs to be distributed to all plan participants and beneficiaries (if applicable) no later than two months following the filing deadline for Form 5500.

Is a fidelity bond required for retirement plans?

Every plan fiduciary or individual who can handle plan assets must be covered by a fidelity bond. As defined by the Department of Labor, “an ERISA fidelity bond is a type of insurance that protects the plan against losses caused by acts of fraud or dishonesty.” The amount of the bond must be either 10% of the plan’s assets at the start of the plan year or $500,000, whichever amount is less.

How do I file Form 5500?

Form 5500 or 5500-SF must be filed through the EFAST2 website using EFAST credentials assigned by the DOL after logging into Login.gov. The form must be filed electronically and businesses must register and obtain EFAST2 credentials. If you have questions, refer to the EFAST2 Credentials FAQs compiled by the DOL.

If you choose to file Form 5500 through a vendor-approved software program, you still need to follow the first two registration steps that are outlined below in the EFAST2 website instructions. After completing these steps, you should then refer to the instructions that came with your purchased software or consult with the software vendor.

For more detailed instructions on how to file IRS Form 5500, we would suggest you check out the following resources: EFAST2 FAQ, EFAST2 Guide for Filers and Service Providers, EFAST2 IFILE User Guide, and interactive EFAST2 tutorial. Most importantly, we encourage you to consult with a tax advisor who can guide you through all your Form 5500 needs.

Important rules for filing your Form 5500

The Department of Labor requires online filings through the ERISA Filing Acceptance System (EFAST2). You can obtain sign-in credentials for this step at www.efast.dol.gov. Failing to file properly or with complete information can result in fines and penalties. If you need more time to fill out your Form 5500, file Form 5558 by the filing deadline to receive an extension.

Avoid Form 5500 errors

To avoid common Form 5500 errors, follow these tips:

1. Reread the questions and any answers that require unique codes or figures.

2. Don’t note that there are zero plan participants if there are any eligible employees or employees with balances.

3. File Form 5500 as long as the plan has assets, even if the plan has been terminated.

4. Look for accidental excess deferrals or contributions above the allowable amounts.

5. Don’t copy answers from the previous year’s form.

6. Consider working with a professional.

Do all employers need to file a Form 5500?

Most employer-sponsored plans are subject to ERISA requirements and often require plan sponsors to file a Form 5500 for each plan. However, there are certain exclusions for unfunded plans. If you still have questions about how to navigate Form 5500 or are interested in setting up an employer benefit plan, such as a 401(k), we’re here to help.

Advantages of hiring a 3(16) Fiduciary Services Provider

Naming a 3(16) Fiduciary Services Provider allows plan sponsors to delegate certain fiduciary responsibilities, limit their fiduciary responsibility, and reduce many administrative burdens of operating a 401(k) plan. Some 3(16) fiduciaries will even handle the processes of signing and filing the annual Form 5500.